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Business Watch: News Digest

SINGING THE BLUES: Gap reported a sales drop of 12% for April, hurt by currency rates and continued weakness at Banana Republic and its namesake stores, which reported drops of 8% and 10%, respectively.
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DAVID PAUL MORRIS/BLOOMBERG NEWS

US Foods Prepared to Walk Away from Deal

A US Foods Inc. executive said in federal court Monday that his company would walk away from its planned merger with rival
Sysco Corp.
SYY 1.98%
if the presiding judge issues an injunction to preliminarily block the deal.

David Schreibman,
an executive vice president for strategy at US Foods, told U.S. District Judge Amit Mehta his company isn’t willing to endure additional lengthy periods of uncertainty about its business while engaging in a protracted legal fight with U.S. antitrust enforcers.

The Federal Trade Commission, which spent more than a year reviewing Sysco’s proposed acquisition of US Foods, sued the companies in February. The commission wants Judge Mehta to block the deal preliminarily while it holds a longer in-house administrative beginning in July.

Monday’s court proceedings saw testimony from top executives at both companies attempting to rebut the FTC’s case.

Sysco Corp. CEO
Bill DeLaney
disputed government claims his company could target customers for price increases if it is allowed to acquire US Foods.

“It would be a very stupid thing to contemplate,” Mr. DeLaney told Judge Mehta.

—Brent Kendall

TEMPUR SEALY

Investor Wins Fight to Unseat the CEO

Tempur Sealy International Inc.
TPX -0.34%
said Chief Executive
Mark A. Sarvary
is stepping down, effective Tuesday, a win for the activist investor that had been pushing for his removal.

The mattress company said Chief Operating Officer
W. Timothy Yaggi
will take the helm on an interim basis until a permanent successor is found. Frank Doyle, a member of Tempur Sealy’s board since April 2003, was elected as the board’s independent chairman, effective immediately.

On Friday, Tempur Sealy shareholders had voted to remove three directors from the board—Mr. Sarvary, Chairman
P. Andrews McLane
and
Christopher A. Masto,
chairman of the nominating and corporate governance committee.

H Partners Management, Tempur Sealy’s largest shareholder with a 10% stake, has waged a campaign to get shareholders to withhold votes from the three directors. H Partners also had said it wanted Mr. Sarvary removed from his job as CEO.

—Tess Stynes

AMERICAN EAGLE ENERGY

Oil Company Files for Bankruptcy Protection

Colorado oil company
American Eagle Energy Corp.
has filed for Chapter 11 bankruptcy protection more than two months after missing an interest payment to bondholders.

American Eagle said that after discussions with its creditors, it believes a bankruptcy filing will give it the best shot at maximizing its value through a debt restructuring or asset sale.

The company has struck an agreement with bondholders whereby American Eagle will cover the group’s legal expenses and provide weekly financial updates in exchange for bondholder support of its request to use cash securing its bond debt to continue operations. However, it hasn’t revealed that it has reached any specifics on the terms of a restructuring.

The Littleton-based company, which buys and develops wells in the Williston Basin of North Dakota, has been negotiating with the holders of its $175 million in bond debt since skipping its March 2 interest payment to the group, with the aim of hashing out a debt restructuring agreement.

The company agreed to make a partial interest payment early last month––$4 million of the $9.8 million due—to allow negotiations to continue for another month. That agreement was set to expire this week, which could have allowed bondholders to take action against American Eagle to collect their debt.

American Eagle filed for bankruptcy on Friday, listing assets of $221.9 million and debts of $215.2 million in the chapter 11 petition in U.S. Bankruptcy Court in Denver. The same day, it filed quarterly financials with the U.S. Securities and Exchange Commission.

In those disclosures, American Eagle said its might file for chapter 11 bankruptcy “in order to provide additional time to identify an appropriate solution to its financial situation and to implement a plan of reorganization aimed at improving its capital structure.”

The company reported $6.9 million in oil and gas revenues for the quarter ended March 31, according to the financial statement, yielding a net loss of $50.7 million. That is compared with $12.5 million in revenue during the same period in 2014 and $1 million in net losses.

The independent oil company is among a number of other oil and gas companies that have skipped debt payments recently, including BPZ Resources Inc., Quicksilver Resources Inc., RAAM Global and Sabine Oil & Gas Corp. BPZ and Quicksilver filed for bankruptcy after skipping their payments, while RAAM and Sabine are still in talks with creditors.

Judge Howard R Tallman has been assigned to the case, numbered 15-15073.

—Stephanie Gleason

AIRBUS

A400M Flight Trials to Resume Tuesday

Airbus GroupNV’s
chief executive officer on Monday expressed confidence in the A400M military cargo plane two days after one crashed and told employees that the company was determined to move forward on the project.

The crash on Saturday of an A400M built for the Turkish air force occurred shortly after takeoff, killing four of the six Airbus staff onboard. The remaining two workers are in a hospital in critical condition. The crew had made a distress call and were trying to return to the Seville airport in Spain where they had just departed.

In a letter to employees, Airbus CEO
Tom Enders
said
Fernando Alonso,
the head of military aircraft programs at Airbus and the former head of the flight-test department, has decided to continue flights with the A400M “to demonstrate to our customers, the air forces, that we fully trust this great transport plane and are as committed to the program and the further ramp-up of deliveries and capabilities as ever.”